Ted's Financial Blog

Since the market lows in crude oil in the late 90′s growing demand from emerging markets and a realization that the easy oil has been found combined to make oil a very popular investment theme. At the same time innovative new products such as the Oil ETF have caused a sharp rise in investor demand. The Dollar has been weakening since 2001 so this has kept an underlying bid under the price of crude oil. Is Oil Investing something you should consider? If the answer is yes, how should you invest?

An investment in actual crude oil is basically a bet that the price of oil is going to continue to rise as that is the only way to make money. The price of oil went up over 1000% between the low in the late 90s and the high that occurred in the summer of 2008, so it’s possible to make lots of money in commodities if you have good timing. The biggest issue with high gas and fuel prices has been that it takes the wind out of the U.S. economy which in turn causes a slowdown in consumer spending as well as gas demand. These swings in demand with a fairly constant supply cause prices to move quite wildly which can be seen on a regular basis. After rising over 1200% between October 1998 and July 2008 prices turned around and fell almost 80% in only 6 or 7 months at the end of 2008, so this is not a market for the timid.

Most people are much better off owning an oil stock etf which contains a basket of oil related stocks instead of owning the actual commodity. This is because the earnings of oil companies tend to be less volatile than the price of oil and oil companies can continue to rake in the cash even if oil prices just stay where they are instead of rising. If you look back at comparisons of the price performance between USO the most popular crude oil etf and XLE the most popular Oil Stock ETF you will see that XLE has strongly outperformed USO since it’s inception and this will most likely continue into the future.

USO or even the double oil etf – UCO can be used for trading short term swings in the price of crude oil, but you need to have good timing skills to make money at that game. You can gain exposure to the downside as well by purchasing the ETF – SCO or the ETN – DTO which both designed to rise as the price of crude oil falls. Most of these financial instruments are designed for short term traders and do not work well for long term investors. For longer term investors the return they can achieve from a good oil stock ETF such as XLE is hard to beat.

If you’re driving without proper auto insurance coverage, there are many ways to get into trouble. While there are laws in almost every state requiring a minimum amount of liability insurance, it’s also the smart choice. I was recently talking to an insurance agent who sells car insurance in Fargo, ND asking about how much car insurance would cost for my teens. There are many different factors that determine what your insurance premiums will cost.

First and probably most crucial is you’re driving record. If you’ve been involved in your share of accidents, received numerous speeding tickets or had DUI or Leaving The Scene violations your insurance is going to be much more expensive. Many insurers have developed vanishing deductibles or safe driver discounts that kick in the longer you go without an accident claim or ticket.

Next your potential insurer is going to want to know your age. A young driver, whether male or female, will be charged more for insurance coverage because they are a greater risk. The difference in premium between someone age 27 and another age 17 can be as much as 25% with an identical car and driving background. Most companies will start to give you lower rates when you hit age 25 and they may drop even a bit more as you continue to get older.You’ll receive a reduction in your premiums at age 25 and some again at 28. The reason premiums drop as you age is because the older age groups have far fewer accidents than the younger groups.

A third consideration you have to think about is the car you’re driving. If your insurance company is going to have to pay to fix an expensive car or one prone to more accidents or thefts, then the premiums will be higher as well. Insurance companies base premiums on historical losses, so if you have an expensive car to fix or a popular theft target there will be higher insurance premiums. While the number of deaths per mile driven has dropped dramatically over the past 15 years nearly 35%, many of the safety features such as crumple zones have increased the cost of fixing automobiles. As vehicles become more expensive and complex the collision / comprehensive portion of your car insurance premiums will continue to increase.

One thing that I think is important is using the internet to get rate quotes to see what’s available but then talk to a local agent to see if there is anything you can do to improve your car insurance rates. Rod was telling me that several of his clients have saved enough on their car insurance premiums to pay for their home or renters insurance which is equally as important. You have nothing to lose by talking to an agent and you may get a positive surprise.

One of my all time favorite skid steer attachments of all time is the skid steer brush mower, what an awesome machine for clearing or cleaning up property. When searching for a skid steer mower at first it may look like they are all the same however once you begin to do your research you will see that you really do get what you pay for in most cases. Finding the correct mower for your needs is easy once you understand the 4 basic factors that separate these mowers from one another.

If you plan on using your brush mower for clearing areas that have thick heavy grass, underbrush and saplings it’s important to make sure it will take the punishment. The first thing to look at is how the mower deck is reinforced since the basic strength of the entire mower is supported by the deck. What I look for is strong support on all 4 sides of the hydraulic motor as well as in the back where it attaches to the skid steer.The most important areas for support are in the center where your power source is attached as well as in the back where the mower attaches to the skid steer. There should also be good integrity along the front of the mower as well and in the four corners but the primary stress will come right around the motor.

I’m sold on using the hydraulic direct drive instead of gear boxes because there is less to go wrong. It should also be mounted on heavy gauge steel plating to reinforce the deck strength. This extra piece of steel along with the rigid supports on all 4 sides will provide enough strength in case you hit rocks or other hard objects with your mower. The elimination of the gear box seems to be a good idea since it’s one less thing that can be damaged by impact or simply by wear and tear over time. Combining the direct drive system with proper brake and pressure release systems can ensure that your mower doesn’t get pushed past it’s structural limits.

If you anticipate using your skid steer mower in adverse conditions even if it’s only on occasion another important aspect is the flywheel. A heavy flywheel allows you to maintain speed through tough spots because it carries greater momentum. If you have to slow down or stop when you get in heavy conditions it may be caused by a lack of hydraulic pressure or a light flywheel. A solid flywheel combined with heavy properly designed blades will make cutting a breeze because of the increased efficiency. I like combining a 250+ pound flywheel with 3 updraft blades instead of two, that seems to be the best combination. I’ve heard the 3 blade design allows you to cover 30% more ground because of the increased surface area of the blades, combine this with updraft blades and you’ve got the ultimate cutting machine!

If you have questions on skid steer mowers or any other skid steer attachments just give Josh Sanden a call at SkidPro – 1-877-378-4642 anytime Monday – Saturday. They are awesome to deal with!

As is true with most people in this country, there is constant upward pressure on the price of everything I purchase but my salary remains about the same as it was 10 years ago. How long can this possibly continue to be the case? It’s no wonder that gold and silver keep hitting new highs on a regular basis. But my question is how long can things keep going up without wages moving?

Anyway, the only thing I see that people can do is finding ways to cut their expenses. I’ve already dropped my cable package down to the basic channels, cancelled my home phone and reduced my cell phone plan to the smallest package. I also recently replaced my flip flops with a pair of orthotic sandals in hopes that it will help my hips and back feel better and I can cut down on trips to the chiropractor. So far they seem to be working, I think my back problems may have been partially from not having good support in my shoes!

I Hate Insurance Premiums!

Now I’m looking through my insurance to see where corners can be cut. I was on a site that talks about term vs whole life insurance to see taking the cash value out of my permanent life insurance and buying a 20 year level term would make sense. I’m 45 so in 20 years I will be retirement age and will hopefully be debt free so I won’t need a lot of life insurance coverage.

Speaking of debt, the other place where I can see there is lots of savings to be had is the amount of credit card interest I pay. It doesn’t seem like a lot when you see your monthly statements but when I added up each of those monthly chares for all 3 of my credit cards it was a shocking number ($1245)!!! I did some online research and uncovered a technique on how to get out of debt for using balance transfer offers and focusing on paying down your smallest balance first. It’s similar to the debt snowball plan that I’ve heard on Dave Ramsey’s show but it takes it a step further. By getting the interest costs as close to zero as possible it frees up lots of cash that can then be used to pay down debt. I have a friend who used this technique to go from $20000 in credit card debt to zero in just two years. That’s pretty fast when you think about it.

Anyway, since my wages are stuck for now I’m going to keep driving my costs down until I have enough free cash flow to pay off my debts. By getting rid of expenses it will be the equivalent of a 10-15% pay raise and I’m not missing any of the things that I cut. I’ll give you an update on my progress in a few weeks!

I was talking to a friend of mine this weekend who sells Home and Auto Insurance in Fargo ND and he started asking me about gas prices. Why is gas so high if there isn’t really a shortage? Having traded futures and markets in general since 1988 I’m often a magnet for these kinds of questions. I told him the short answer is too many buyers. It seems the oil complex has become a place that attracts money that is scared of U.S. Dollar devaluation. Day to day price swings have become much more violent in the past few years with a $4-5 range almost every week.

The other aspect is pure manipulation as Goldman Sachs has gone from bilking mortgage bond buyers to screwing commodity traders. A few weeks ago they kept announcing that crude oil had topped and they were bearish (undoubtedly they were short a rising market) then after the market dropped several dollars in one day they came out with bullish predictions. In other words, they used the drop that they helped to cause to buy crude oil at lower prices.

It doesn’t take much buying or selling to move crude oil prices quite dramatically. The market is much smaller than equity or bond markets and the amount of excess supply is quite low. When there isn’t much excess supply available speculators can easily influence the equation.

There are rumors in the marketplace that the 2008 run up to $140+ was caused by just a few traders who held large speculative positions and colluded to influence prices. I’m not sure if that’s exactly true but it certainly is possible. A few big players can get the market moving and the other momentum players (hedge funds etc) jump on for the ride. A similar thing happened to silver a couple months back and it moved 35% in just a couple weeks before collapsing the other direction.

Bernanke has held interest rates so low for so long that speculators have almost no cost of capital. It has paid handsomely to trade 0% cash for gold, silver, crude oil and other commodities. A little air has come out of the bubble as QE2 winds down, but until there is some cost of capital the oil and commodity markets remain vulnerable to up side pressure. We who purchase food and gas will continue to pay for this speculative excess. However, it’s probably less painful than the deflationary alternative that Bernanke is desperate to avoid.

By the way, I had a question for my insurance friend as well. How much is car insurance for my 16 year old daughter who just had an accident and got ticketed? The answer to that was even worse news than the high gas prices!